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CSE Global Limited's (SGX:544) investors are due to receive a payment of SGD0.015 per share on 26th of June. This makes the dividend yield 6.5%, which will augment investor returns quite nicely.
See our latest analysis for CSE Global
CSE Global's Payment Has Solid Earnings Coverage
While it is great to have a strong dividend yield, we should also consider whether the payment is sustainable. The last payment made up 75% of earnings, but cash flows were much higher. This leaves plenty of cash for reinvestment into the business.
Over the next year, EPS is forecast to expand by 67.4%. Under the assumption that the dividend will continue along recent trends, we think the payout ratio could be 49% which would be quite comfortable going to take the dividend forward.
Dividend Volatility
Although the company has a long dividend history, it has been cut at least once in the last 10 years. The annual payment during the last 10 years was SGD0.0425 in 2014, and the most recent fiscal year payment was SGD0.0275. Doing the maths, this is a decline of about 4.3% per year. Generally, we don't like to see a dividend that has been declining over time as this can degrade shareholders' returns and indicate that the company may be running into problems.
The Dividend's Growth Prospects Are Limited
With a relatively unstable dividend, it's even more important to evaluate if earnings per share is growing, which could point to a growing dividend in the future. CSE Global has seen earnings per share falling at 4.9% per year over the last five years. If earnings continue declining, the company may have to make the difficult choice of reducing the dividend or even stopping it completely - the opposite of dividend growth. However, the next year is actually looking up, with earnings set to rise. We would just wait until it becomes a pattern before getting too excited.
We should note that CSE Global has issued stock equal to 10% of shares outstanding. Trying to grow the dividend when issuing new shares reminds us of the ancient Greek tale of Sisyphus - perpetually pushing a boulder uphill. Companies that consistently issue new shares are often suboptimal from a dividend perspective.
In Summary
Overall, it's nice to see a consistent dividend payment, but we think that longer term, the current level of payment might be unsustainable. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. Overall, we don't think this company has the makings of a good income stock.